Thursday, August 23, 2012

India eases domestic, overseas borrowing regulations



Reuters / Mumbai Aug 23, 2012, 10:54 IST


India is looking to make it easier for companies to raise funds by allowing them to issue rupee bonds that are guaranteed from offshore entities, while easing some of its overseas borrowing rules.

Earlier, only infrastructure and infrastructure finance companies could issue rupee-denominated bonds with guarantees from multilateral or regional financial institutions.

 The guarantee for domestic companies from offshore entities effectively lifts the credit ratings of the bonds, benefitting lower-rated borrowers.


Indian companies have been constrained in their funding options due to high domestic interest rates and difficulties in tapping markets overseas.

The government is also keen to take measures to boost confidence in India after the country's image took a beating among foreign investors because of slowing policy reforms.

The actions targeting credit guarantees would especially benefit sectors such as telecoms and energy, where foreign companies often operate via Indian units, but whose domestic borrowing had been constrained if they had lower ratings than their parent companies.

Foreign investors will also be allowed to invest up to $5 billion in these credit-enhanced rupee bonds, although the overall corporate bond limit will remain at $45 billion.

The minimum maturity of bonds issued by these domestic units has been reduced to three years from seven years.
Among other measures, the government will allow infrastructure and manufacturing companies to re-finance a higher proportion of their rupee borrowings via cheaper overseas debt.

These companies can now tap overseas loans up to 75 percent of their average forex earnings over the previous three financial years from 50 percent previously.

The government has also allowed state-run refinance institution S IDBI to tap overseas funds to then lend on to medium and small enterprises.

To boost low-cost housing, India will also allow National Housing Bank and housing finance companies to borrow from overseas markets.



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